Forward

The purpose of this collaboration between the National Association of State Budget Officers (NASBO) and the Reforming States Group (RSG) is to identify and summarize the amount of state health care expenditures in broad categories. This third edition of the report significantly expands upon the earlier two editions by broadening the definition of health care to include population health expenditures.

Health care spending by state governments totaled $260.6 billion in fiscal 2000 and $290.7 billion in fiscal 2001, representing about one-fifth of the nation’s overall health care spending.1 Of the total amount of state spending, about 53 percent was from state funds, with the remainder from federal funds. The change of $30.0 billion between the two fiscal years represents an 11.5 percent increase.

The largest components of state health care expenditures were Medicaid, state employees’ benefits, and population health services. Together these components accounted for more than four-fifths of total state health care spending.

State health care spending comprised approximately 30 percent of all state spending in fiscal 2001. While this report covers expenditures in fiscal 2000 and fiscal 2001, the continued acceleration of health care costs both absolutely and relative to other state expenditures would most likely increase this percentage over time. National health care expenditures by the Centers for Medicare and Medicaid Services, for example, project a rise from $1.4 trillion in 2001 to $2.8 trillion in 2011, an average annual increase of 7.3 percent. By 2011, national health care spending would comprise approximately 17 percent of the gross domestic product, up from the current 14 percent, outpacing economic growth during this period. Health care continues to be one of the most important cost drivers for state governments.

The expansion of spending on population health represents an initial attempt to catalog state spending in the areas of environmental health, surveillance, and promotion of healthy behavior, as well as the public health aspects of disaster preparation and disaster response. While this effort had been underway, the tragic events of September 11 underscored the significance of the nation’s public health infrastructure. Federal expansion in this area of public health began in fiscal 2002 with bioterrorism grants, but this is not reflected in the fiscal 2000 and fiscal 2001 data. As such, this report can serve as a baseline against which to compare future spending affected by these grants and other funding sources.

This report also provides a perspective on the significance of state health care spending in the nation’s provision of personal health care services. It provides an overview of the states’ role in health care both as purchasers of services and as direct deliverers of care. Both as employers and as providers of services, states are feeling the changes in the world of health care—from the surge of prescription drug prices to new demands to protect the public’s safety. The surge in health care costs, most notably in Medicaid and employees’ health insurance, has added to the budget stress recently felt by states. While Medicaid dominates in both dollars and impact on state fiscal conditions, state spending in non-Medicaid programs accounted for $79.7 billion in fiscal 2000 and $89.5 billion in fiscal 2001—an increase rate of 12.4 percent.

States have seen considerable debate over the dramatic changes occurring in health care, but for the most part, decision makers did not have access to the full spectrum of health care expenditure data for their respective states. To fill this void, leaders of NASBO and the RSG decided to pursue a collaborative project to determine the total amount of state-funded health expenditures in each state. The first report, the 1997 State Health Care Expenditure Report, showed total health care spending by states for fiscal 1997, and represented the first effort ever to detail state health care spending in such a thorough manner. Building on that foundation, the 1998–1999 State Health Care Expenditure Report presented total state health care spending for the following two fiscal years.

While the 1998–1999 edition closely followed the format of the previous report, it differed by providing data on employees’ contributions to health insurance premiums and flexible spending programs, and by separately reporting expenditures for the State Children’s Health Insurance Program (SCHIP).

This 2000–2001 edition significantly expands upon the previous two editions with the addition of the population health expenditures. Some elements of these expenditures had been previously collected in the earlier editions under direct public health expenditures. Comparisons among various editions need to take into account the changes in definitions from one report to another.

Readers also should be aware that considerable differences exist from state to state regarding the types of services provided and the level of government providing the services. Spending by other units of government within states, such as counties and cities, is not included in the data.

Finally, the individual state profiles included in both the print and electronic versions of the two previous editions are this time included in the electronic version only. In addition, NASBO will provide access to the electronic data files to qualified individuals upon request; such persons include officials of the legislative and executive branches of government and persons conducting sponsored research. Data availability is further contingent upon compliance with NASBO’s data release policies regarding nonpublication, secondary release, and the like.

This report is a collaboration between the RSG and NASBO, facilitated by the Milbank Memorial Fund. NASBO is a nonpartisan professional organization of governors’ state finance officers that provides research and educational information on major public policy issues. The RSG, organized in 1992, is a voluntary association of leaders in health policy in the legislative and executive branches of more than 40 states. The Fund is an endowed national foundation, established in 1905, that works with decision makers in the public and private sectors to carry out nonpartisan analysis, study, research, and communication on significant issues in health policy.

Many individuals contributed to the preparation of this report. The following persons, who are listed in the positions they held at the time of their participation, provided advice and guidance: John Colmers, Milbank Memorial Fund; Lee Greenfield, Chair, Health and Human Services Finance Division, Minnesota House of Representatives; Gerry Oligmueller, State Budget Administrator, Nebraska; Sheila Peterson, Director, Fiscal Management Division, North Dakota; Wayne Roberts, Budget Director, Texas; and Sandy Praeger, Chair, Public Health and Welfare Committee, Kansas Senate.

The expansion of this report to include population health required input from many individuals. Representatives gathered in September 2001 to develop the definitions used for population health expenditures. In addition to those individuals mentioned above, the following individuals, listed in the positions they held at the time of their participation, provided insight and guidance for the process. They are: Andres Alcantar, Texas Office of Budget Planning and Policy; Anne Barry, Deputy Commissioner, Minnesota Department of Finance; Georges Benjamin, Secretary, Maryland Department of Health and Mental Hygiene; Kevin Concannon, Commissioner, Maine Department of Human Services; Robert Fordham, Milbank Memorial Fund; David Kindig, Milbank Memorial Fund; Ann Kohler, New Jersey Office of Management and Budget; Joel Lunde, Iowa Department of Management; Kevin Madigan, Rhode Island Senate Fiscal Office; Joanne Mrazik, New Jersey Department of Treasury; Elizabeth Roberts, Vice-Chair, Health, Education, and Welfare Committee, Rhode Island Senate; Avry Smith, North Dakota Office of Management and Budget; and Linda Stahr, Chief of Staff, Public Health Services, Maryland Department of Health and Mental Hygiene.

Individuals in pilot states provided a review of the added questions for the population health expansion. These pilot states were Iowa, Maine, Maryland, Minnesota, Nevada, New Jersey, North Dakota, Oregon, and Texas. Individuals in state budget offices across the country provided data for this report.

Neil Bergsman
President, National Association of State Budget Officers
Executive Director
Maryland Office of Budget and Management

Raymond D. Rawson
Chair, Reforming States Group
Assistant Majority Floor Leader and Chair, Human Resources and Facilities Committee
Nevada Senate

Daniel M. Fox
President, Milbank Memorial Fund